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Troubleshooter

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  • 18/11/2002
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My client is keen to enter the commercial property market as an investment. Would he be better taking on a small property himself, or investing with a commercial fund? What are the different levels of return he could expect?

The single asset purchase can give good returns in terms of both financial benefits and in the fun of owning and managing the property.

The fund, however, offers the opportunity to invest the equity with many others, generally in larger ticket prime investment property, or in a particular sector of the commercial market.

Purchasing a single unit as a first time investor will normally involve a visit to the auction or discussions with commercial agents. Investors often buy locally, and typically a small shop. This is a competitive area of the market, but the borrower can expect a running return of between 6% and 10%. If managed personally the investor can save agents fees, but he will need to seek professional help with re-letting and possibly lease negotiations. Debt level for this type of investment will be around 70% to 75%.

Investing in a fund gives access to a professionally man- aged portfolio and rental yield tends to be below 6%. Returns are reinvested in the fund and the strategy is one of capital growth. However finance is cheaper than for single asset purchase.

The single asset offers good ongoing returns and the prospect of capital growth over time. But there is the risk of rental voids and all the eggs in one basket. The fund however, is a longer term, safer investment.

Andrew Turzynski


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